Yahoo's net income was $164 million in the second quarter 2006, about 78% lower than the $754.7 million seen a year earlier. However, the 2005 figure included a $552 million one-off gain earned when Yahoo sold its remaining shares in rival Google last year. California-based. Yahoo! had bought the shares as an early investment in Google.

So, in May, Yahoo! announced it would soon launch its improved web search advertising system. The new software system is intended to enable advertisers to target potential customers with more precision, based upon the words users type into the search box. Terry Semel, Yahoo!’s chief executive, told investors in a conference call yesterday afternoon that Project Panama, which is the name of the company’s effort to match Google’s ad-selection technology, would be delayed by at least three months. Instead of being introduced this quarter, the new advertising system will not be switched on until at least the fourth quarter. This might not seem like such a big delay, but in fact, the two-year-old project is already many months behind its original schedule.

This is My Take: Yahoo!’s real genius and competitive advantage lies in understanding the particulars of content on the Internet. There is so much out there, how do I find and discover what I like? Yahoo!’s Technology Group is working on solving this problem for the consumer by incorporating people-powered metadata systems from two other Yahoo! properties: the recommendation technology from Yahoo! Music and the tagging system from Flickr, the photo-blogging company Yahoo! acquired last year. That is the kind of stuff that is really exciting to me and what will make Yahoo! stand out and have a competitive edge toward search rival Google. The problem so far is that the breakthrough in, for example, video content delivery, is waiting to happen (market conditions).

What is more, Yahoo!’s original content endeavors, from celebrity blogs to online reality shows, have fallen flat or been stuck in “development hell”. Yahoo! announced earlier this year that it had reconsidered its strategy to create a lot of original content, and was going to look more towards licensing content from independent producers, commercial partners and its users:

“The media group’s emphasis on original content has evolved so that it’s one piece of the puzzle,” said Yahoo! spokeswomen Johanna Stevens. “When you go through a budgeting process and ask how you’re going to make money off these things, you come to the realization maybe this isn’t the best way to make money.”

So, to me, Yahoo! is one of the worlds most exciting Internet companies out there with huge potential, but I can also understand why the market is trading its stock at a 2-year low. Yahoo! is currently having trouble with both search, technology and defining what role it will take on the content side.

So, what does all this mean for Google? It depends if you think that Yahoo! is effected by company specific factors or general market conditions. If it is the latter, it is bad news for Google. How? Internet Analyst turned blogger Henry Blodget sums it up:

http://www.internetoutsider.com/2006/07/yahoo_whiffs_im.html